6 Do’s and Don’ts Before Committing to a Mortgage Loan

Get approved, skip the pitfalls

There are many moving parts to manage when shopping for, applying for, and awaiting mortgage approval. If it’s your first time borrowing, it’s natural to feel a bit overwhelmed by such a major financial decision. While small mistakes happen, it’s the bigger missteps you want to avoid, as they can increase costs or even lead to loan denial.

To boost your chances of mortgage approval and secure better financing terms, it’s important to follow key best practices and steer clear of common pitfalls. Read on for the essential do’s and don’ts when choosing a lender and finalizing your loan.

Why it’s important to do your homework as a borrower candidate

Ask the experts and they’ll tell you that it’s always best to be prepared well ahead of applying for a mortgage loan, particularly if you are a first-time buyer.

“Doing your homework before committing to a mortgage loan is not optional – it’s essential,” says Rachel Stringer, a real estate agent with Raleigh Realty. “Buying a home is likely the biggest purchase you will ever make, and going in unprepared can cost thousands over the life of the loan. That’s why you want to understand your finances so you can have a realistic picture of what you can afford. Remember that lenders will scrutinize your income, debts, and credit score, and you should, too.”

Tanya Bates, senior vice president of home loans and regional director at Bank of Oklahoma Financial Mortgage, echoes those thoughts.

“You want to understand your financial health by thoroughly knowing your income, expenses, savings, and debts,” she says. “It’s also wise to consider long-term goals and how a home fits into them.”

6 “do’s” before choosing a mortgage loan

So what are the crucial boxes you want to mark off your checklist before or during the process of applying for home financing? Here’s a roundup of to-do’s that are musts, per the pros.

“Do” #1: Review your credit carefully

Check your three free credit reports and scour the information. If you notice any inaccuracies or errors, work to have them corrected with each of the three credit bureaus: Experian, Equifax, and TransUnion. Once fixed, it should boost your credit score at least slightly.

“Do” #2: Up your credit score

Check your three-digit FICO score, which indicates your creditworthiness. A higher score (preferably in the 700s or higher) could land you a loan with better terms and a lower rate. Your bank or credit card may be able to provide free access to your current credit score.

You can raise your credit score by paying your bills in full and on time, not opening any new credit accounts and not closing any existing ones, asking your credit card issuer for an increased credit limit, and not using more than 30% of your available credit limit on credit cards.

“Do” #3: Research different loan options

“Choosing among loan products is like ordering food on a menu,” explains Chris Carter, vice president and sales manager for home loans and mortgage banking at Univest Bank & Trust Co. “Every lender will carry the main entrees, like a 30-year conventional fixed-rate mortgage. But not every lender offers government loans, such as an FHA home loan, VA loan, or USDA loan.”

Each loan type has its pros and cons. For example, conventional mortgage loans are usually offered by a wider variety of lenders. FHA loans can be easier to qualify for and may require as little as 3.5% down, but you’ll have to pay for mortgage insurance. VA and USDA loans require no down payment, but to be eligible you will need to be a veteran or active duty military member for the former or purchase in an approved rural area for the latter.

“Do” #4: Shop around among many lenders

The more darts you throw, the better your chances of hitting a bullseye. The same goes for mortgage shopping—exploring multiple lenders gives you more loan offers and rates to compare, helping you land the best deal.

“There are many lenders out there. Call some of them. Are they responsive? Are they accessible on nights, weekends, and holidays when you will be looking for a home? Are they patient with you or are they hurried? You want a lender who will be attentive and a good listener,” suggests Carter.

Becky Conner-McDuffy, a senior loan officer at Penny Lane Financial, recommends looking closely at online reviews.

“These offer a wealth of information about the experiences others have had and can guide you toward lenders who prioritize customer service,” she says.

Once you’ve narrowed down your list of lenders and loan products, you can begin mortgage rate shopping to see how each of them prices their respective interest rates and what fees they charge.

“Make sure to compare apples to apples – same loan type, same rate, same term, same length of lock period, etcetera,” says Carter.

“Do” #5: Get preapproved or at least prequalified

It’s smart to get preapproved for a mortgage loan well before formally applying for a loan. This means a lender has reviewed your income, credit score, and debts, and confirmed you qualify for a loan up to a certain amount. It provides a clearer idea of what you can afford and bolsters your position with sellers.

“It shows sellers that you are serious. A preapproval letter could be the difference between your offer being accepted or ignored,” says Stringer.

Getting preapproved can also help you identify any potential issues with your credit or financial situation early on, notes Bates.

Or, at minimum, you can get “prequalified” for a loan. This is a quicker and less thorough process whereby a lender reviews your basic financial information, like your earnings and debts, and provides a rough idea of what you might get approved to borrow. But it’s less dependable at predicting that you’ll get approved than a preapproval is, and it won’t impress a home seller as much as a preapproval letter will.

“Do” #6: Understand the fine print and your rights

Be sure you read and understand the terms and conditions of any mortgage documents before you sign them.

“Pay attention to details like prepayment penalties, discount fees, adjustable-rate mortgages, or any other clause you might be unclear about,” advises Bates. “Good communication is key, so don’t be afraid to ask questions. It’s better to address any concerns upfront than to deal with surprises down the road.”

It could be smart to hire an attorney to help you during the closing process—a legal expert who can help you review all of your mortgage documents, recommends Marc Dann, an attorney at DannLaw who specializes in real estate.

“Also, familiarize yourself with consumer protection laws in your state that safeguard you against predatory lending practices,” he continues. “And don’t be afraid to walk away from the deal if something feels off or if you are uncomfortable.”

6 “Don’ts” before choosing a mortgage loan

Likewise, it’s also imperative to sidestep common missteps many borrowers make. Here are 6 things to avoid.

“Don’t” #1: Don’t pick the lender or loan only based on interest rate

Paying a lower rate will potentially mean forking over thousands less in overall interest over the life of your loan. It’s a big deal, of course. But choosing a loan or lender solely based on the lowest interest rate quoted isn’t necessarily the best decision.

“Sometimes the lowest rate comes with the highest cost. Make sure you carefully compare loan programs as well as what that interest rate quoted might cost you if discount points or other fees are applied,” says Bates.

Conner-McDuffy agrees.

“Although rates matter, lenders with the lowest rates often lack in-service, speed, and communication. Their low overhead may result in a frustrating loan process,” she cautions.

“Don’t” #2: Never assume your credit is good enough without checking first

Your credit scores and credit reports will be analyzed by the lender you apply with. But you don’t want to apply before verifying yourself that these are up to par. For a conventional mortgage, you typically need a FICO score of 620 or higher. An FHA loan with a 3.5% down payment usually requires a score of 580 or more, while an FHA loan with a 10% down payment can go as low as 500. VA loans do not have a set minimum score from the VA, but individual lenders may set their own requirements. USDA loans don’t have a specific minimum score, though most lenders prefer a score of 640 or higher.

“Don’t” #3: Ignore your gut at your own peril

If something doesn’t feel right at any step along the way, investigate it and determine if it’s a deal breaker – whether it’s a clause in the document, a pushy loan officer, or a lender company you’re unsure about.

“Also, don’t rely on recommendations from others if your experience feels off,” says Conner-McDuffy. “Even if a lender comes highly recommended, trust your gut. If their communication style or initial interactions don’t feel right, keep looking.”

“Don’t” #4: Do not rush the process

Yes, this process can feel stressful, and there are a lot of steps involved. But take a deep breath, relax, and don’t be in a hurry to get to the finish line as quickly as possible.

“Take your time to evaluate all options. Remember that haste can lead to poor decisions,” says Dann.

Rushing through the paperwork is another regrettable decision.

“The fine print is there for a reason, and skipping it can lead to unexpected costs or terms you didn’t agree to,” warns Stringer.

“Don’t” #5: Don’t be afraid to ask for help and guidance

You’re not in this alone. If you have questions about anything you don’t understand, you can always reach out to your assigned loan officer or lender, your agent or Realtor, and/or your real estate attorney (if you hire one). Even if you feel in control and well-educated during the process, it’s a good idea to contact these team members and ask them for advice or insights.

“Don’t” #6: Avoid making major financial changes

Switching jobs, making a large purchase like buying a new car, losing your job, or getting divorced just prior to applying or closing on a mortgage loan are no-nos.

“These actions can affect your ability to qualify for the loan. Maintain your financial stability until the loan has been finalized,” Bates suggests.

The bottom line

The key to bypassing borrower regret is to empower yourself with knowledge so you can make a more well-informed decision about lenders and loans. That means getting familiar with different loan programs, understanding how financing works and your obligations, asking questions about anything you don’t understand, making checklists and keeping good notes, and taking your time without feeling hurried.

When in doubt about any of these matters, consult closely with your real estate agent and loan professional.